MANAGEMENT'S DISCUSSION AND ANALYSIS

Management's Discussion and Analysis of Financial Condition
and Results of Operations.


   The terms "Aquarion Company," "Aquarion" and "the
Company" are used in this section for convenience and reading
ease.  These terms do not in all cases describe exact
intercompany relationships among Aquarion and its
subsidiaries.


   Effective at the close of business on December 31, 1996,
Bridgeport Hydraulic Company, a wholly owned subsidiary of
Aquarion Company, merged with its wholly owned subsidiaries
Stamford Water Company (SWC), New Canaan Water Company (NCWC)
and Ridgefield Water Supply Company (RWSC).  Bridgeport
Hydraulic Company is the surviving corporation and has changed
its name to BHC Company (BHC).  BHC consists of an Eastern
division, formerly Bridgeport Hydraulic Company, and a Western
division, formerly SWC, NCWC and RWSC.


    On March 25, 1997, the Company executed the stock
purchase agreement, effective December 31, 1996, completing
the sale of Industrial and Environmental Analysts, Inc. (IEA),
its environmental testing laboratory business for
approximately $10,000,000.  IEA's results were recorded as a
discontinued operation for the year ended December 31, 1996. 
The Company recorded an after-tax loss of $4,255,000 or $0.61
per share from the sale of the discontinued operation for the
year ended December 31, 1996 (see Note 2 to the financial
statements).


Capital Resources and Liquidity.


Capital expenditures.  The Company invested $21,200,000 in
property, plant and equipment in 1998, compared with
$28,700,000 in 1997 and $38,600,000 in 1996. Aquarion's
utility subsidiaries, BHC and Sea Cliff Water Company (SCWC)
(collectively, the Utilities) accounted for approximately
95 percent of plant additions during the three-year period. 
Management estimates that capital expenditures will total
$28,000,000 in 1999, of which approximately $27,000,000 will
be for water utility construction projects. 

<PAGE>
 
<TABLE>
                    Capital Expenditures
<CAPTION>
                           (In thousands)

<S>                             <C>                              <C>
                                1994                             $19,900

                                1995                             $41,600

                                1996                             $38,600

                                1997                             $28,700

                                1998                             $21,200

                                1999 Projected                   $28,000

</TABLE>

      Federal Safe Drinking Water Act (SDWA) regulations
require water filtration or alternate water treatment measures
for BHC's major unfiltered water supplies. In accordance with
SDWA regulations, on July 1, 1997, the Warner Water Treatment
Plant at Hemlocks Reservoir was fully operational and put into
service at a total project cost of approximately $46,300,000.


Financing activities.  The Company's capital expenditures have
historically been financed from several sources including
internally generated funds, rate relief, proceeds from debt
financings, issuances of common stock, and short-term
borrowings under the Company's revolving credit agreements.

<TABLE>
<CAPTION>
              Cash Flow from Operations Per Share


<S>                             <C>                                <C>
                                1994                               $5.16

                                1995                               $3.29

                                1996                               $3.39

                                1997                               $5.43

                                1998                               $4.99

</TABLE>

   The percentage of capital expenditures financed
by net cash from operating activities was
100 percent, 100 percent and 62 percent for the
years ended December 31, 1998, 1997 and 1996,
respectively. (See "Consolidated Financial
Statements-Consolidated Statements of Cash Flows.") 

    In 1996, the remainder was provided by external
financing sources. 

 
The Company obtained funds of $3,934,000 from
the issuance of 119,865 shares of common stock under
its Dividend Reinvestment and Common Stock Purchase
Plan (the Plan) in 1998, versus $3,504,000 (135,829
shares) and $3,449,000 (143,781 shares) in 1997 and
1996, respectively.  The Company also obtained funds
of $1,373,000 for 56,612 stock options exercised in
1998 and $2,398,000 for 114,537 stock options
exercises in 1997.  There were no stock option
exercises in 1996.  The Utilities received
$3,011,000 from advances and contributions in aid of
construction from developers and customers in 1998
compared to $3,217,000 in 1997 and $2,626,000 in 1996.


   On November 1, 1998, BHC redeemed, at maturity,
its Series R, 6.875 percent first mortgage bonds,
which were issued in 1968.


   Aquarion has revolving credit agreements that
provide $40,000,000 of short-term credit
availability (see Note 9 to the financial
statements).  The Company borrows on a short-term
basis and periodically refinances through long-term
debt or equity issuances.


   The Company has a target dividend payout ratio,
Over the long term, of 75 percent of net income. 
The dividend payout as a percentage of net income
was 62 percent and 78 percent in 1998 and 1997,
respectively, and 33 percent and 30 percent as a
percentage of net cash provided by operating activities 
in 1998 and 1997, respectively.

<TABLE>
<CAPTION>
                    Dividend Payout Ratio

<S>                             <C>                          <C>
                                1994                         87%

                                1995                         85%

                                1996                        125%

                                1997                         78%

                                1998                         62% 
</TABLE>

<PAGE>
 

Future financing requirements. In addition to the Company's
general financial policies regarding capitalization, market
conditions and other economic factors, the Company's ability
to finance future capital expenditures depends on rate relief. 
Rate relief has an impact on cash flow since sufficient
operating cash flows are necessary to maintain debt coverage
ratios to allow for the issuance of additional debt securities
and to provide a reasonable return in the form of dividends to
Aquarion's shareholders.  


    The Company's ability to obtain funding from external
sources will be affected by the terms of certain of its
existing obligations.  Additional long-term debt may be issued
by BHC under the terms of its Senior Notes (BHC Senior Notes)
as long as it meets a 66 2/3 percent long-term debt to total
capitalization test.


   The Company's need for future external financing may
also be affected by future net proceeds from its land-
disposition program.  BHC identified approximately 2,700 acres
of off-watershed land, 2,150 of which are remaining at
December 31, 1998, as surplus to utility operations.  Most of
this land was previously in BHC s rate base.  Under
Connecticut law, net proceeds from the sale of land which have
been in a utility's rate base must be reinvested in utility
plant, and profits from such transactions are allocated by the
Connecticut Department of Public Utility Control (DPUC)
between the utility's customers and shareholders pursuant to
legislative and regulatory criteria (see Note 4 to the
financial statements).


Other


Year 2000.  The Company is currently evaluating its exposure to the Year
2000 problem and taking steps to be Year 2000 compliant. In general terms,
the problem arises from the fact that many existing computer systems and
other equipment containing date-sensitive embedded technology (including
non-information technology equipment and systems) use only two digits to
identify a year in the date field, with the assumption that the first two
digits of the year are always "19".  As a result, such systems may
misinterpret dates after December 31, 1999, which may result in 
miscalculations, other malfunctions or the total failure of such systems. 
Additional problems arise from the fact that the Year 2000 is a special case
leap year.  Because the Company is dependent upon the proper functioning of
computer systems and other equipment containing date-sensitive technology, a
failure of such systems and equipment to be Year 2000 compliant could have a
material adverse effect on the Company.  If not remedied, potential risks
include business interruption or shutdown, financial loss, regulatory
actions and legal liability.


   The Company has established a Year 2000 task force comprised
of senior management and operating personnel to coordinate its
Year 2000 efforts.  This task force is currently evaluating the
Company's exposure to the Year 2000 problem and is preparing a
plan for managing the risks and costs associated therewith.  The
Company has hired an outside consultant to assist it in preparing
and implementing its Year 2000 compliance and contingency plans. 
In addition, the DPUC has informed the Company that it will
review the Company's Year 2000 preparations.

                               8
<PAGE>

<PAGE>

    The Company's general process of addressing the Year 2000
problem consists of the following steps:  (a) inventorying
systems, equipment and other items (including relationships with
third parties) that potentially present a Year 2000 problem, (b)
determining the significance of such items to the Company and
assessing the Year 2000 compliance of the material items through
internal testing and outside certification, (c) repairing,
replacing or preparing for the failure of material items that are
determined to be non-compliant, (d) testing repaired or replaced
items, and (e) designing and implementing contingency plans.


   The Company, in the ordinary course of business, is in the
process of replacing its corporate information system and several
other systems that are not Year 2000 compliant.  These systems
had been scheduled for replacement for reasons unrelated to the
Year 2000 problem. The integration of the new systems is expected
to be completed during the first quarter of 1999.  The Company
intends to perform independent Year 2000 testing of these
systems, which is expected to be completed during the first
quarter of 1999.


   The Company has completed its preliminary inventory of other
systems, equipment and items that potentially present a Year 2000 
problem.  The Year 2000 consultant is reviewing this inventory
and anticipates that such review will be completed by the end of
February 1999.  The Company intends to begin internal testing,
and seeking outside certification, of critical inventoried items
by the end of the first quarter of 1999, and expects to complete
such assessment by the end of the second quarter of 1999.  While
the Company will not know the nature and extent of required
repairs and replacements of non-compliant systems and equipment
until such assessment is completed, it currently anticipates
completing and testing such repairs and replacements by the end
of September 1999.


   In addition to its own systems and equipment, the Company
depends upon the proper functioning of computer systems and other
date-sensitive equipment of outside third parties.  These parties
include banks, telecommunications service providers and electric
and other utilities.  The Company has compiled a preliminary list
of such parties and has contacted these parties to determine the
extent to which they are vulnerable to the Year 2000 problem. 
The Company does not currently have sufficient information about
the Year 2000 exposure or remediation plans of such parties to
predict the risk they pose to the Company.  If the third parties
with which the Company interacts have Year 2000 problems that are
not remedied, resulting problems for the Company could include
the loss of telecommunications and electrical service.


    Due to the uncertainties presented by such third party Year
2000 problems, and the possibility that, despite its efforts, the
Company may be unsuccessful in preparing its internal systems and
equipment for the Year 2000, the Company is developing
contingency plans for dealing with its most reasonably likely
worst-case scenario. Such plans will likely include manual backup
for automated systems, the use of electrical generators capable
of sustaining operations through a power failure, and enhanced
transition-period staffing to compensate for automation and
communication failures.  The Company's assessment of its most
reasonably likely worst-case scenario and the exact nature and
scope of its contingency plans will be affected by the Company's
continued Year 2000 assessment.  The Company expects to complete
such assessment and contingency planning during the third quarter
of 1999, and to have all contingency systems in place and fully
tested by the fourth quarter of 1999. 


    The Company estimates that, as of December 31, 1998, its
costs of addressing the Year 2000 problem have been less than
$200,000.  While the Company is currently unable to estimate
future costs of addressing the Year 2000 problem, it does not
believe that such costs will be material to the Company's
financial condition or results of operations.  The Company has
funded, and expects to continue to fund, the costs of its Year
2000 remediation efforts from operating cash flow.
This description of matters relating to the Year 2000
problem contains a number of forward-looking statements.  See
"Forward-Looking Statements".  The Company's assessment of the
costs of its Year 2000 program and the timetable for completing
its Year 2000 preparations are based on current estimates, which
reflect numerous assumptions about future events, including the
continued availability of certain resources, the timing and
effectiveness of third-party remediation plans and other factors. 
The Company can give no assurance that these estimates will be
achieved, and actual results could differ materially from those
currently anticipated. In addition, there can be no assurance
that the Company's Year 2000 program will be effective or that
its contingency plans will be sufficient.  Specific factors that
might cause material differences include, but are not limited to,
the availability and cost of personnel trained in this area, the
ability to locate and correct relevant computer software codes
and embedded technology, the results of internal and external
testing and the timeliness and effectiveness of remediation
efforts of third parties.


Inflation.  Inflation, as measured by the Consumer Price Index,
increased 1.6 percent, 1.7 percent and 3.3 percent in 1998, 1997
and 1996, respectively, and primarily affects the Utilities.  The
regulatory authorities allow the recovery of depreciation through
revenues solely on the basis of the historical cost of plant. 
The replacement cost of utility plant will be significantly
higher than the historical cost. While the regulatory authorities
give no recognition in the ratemaking process to the current cost
of replacing utility plant, the Company believes that, based on
past practice, the Utilities will continue to be allowed to earn
a return on the increased cost of their net investment when
prudent replacement of facilities actually occurs. 


Results of operations


1998 compared with 1997
Overview. The Company s consolidated net income for 1998 was
$19,959,000 compared with net income of $15,011,000 in 1997. 
Basic earnings per share was $2.69 in 1998 based on a weighted
average of 7,423,460 common shares outstanding, compared with
$2.10 in 1997 based on a weighted average of 7,139,894 common
shares outstanding.  Diluted earnings per share for 1998 was
$2.62 based on a weighted average of 7,611,723 common shares
outstanding compared to diluted earnings per share of $2.08 in
1997 based on a weighted average of 7,215,626 common shares
outstanding.  Operating results in 1998 reflect increased real
estate sales, primarily the sale of land to the City of Shelton,
Connecticut, which contributed $3,510,000 to net income.  

<TABLE>
CAPTION>
                    Book Value Per Share

<S>                             <C>                               <C>
                                1994                              $17.43

                                1995                              $17.72

                                1996                              $17.52

                                1997                              $18.26

                                1998                              $19.56
</TABLE>

Operating revenues.  Consolidated operating revenues were
$115,669,000 in 1998, an increase of $8,567,000 from 1997. The
increase in real estate sales of $6,747,000 was primarily
attributable to the sale of land to the City of Shelton. Revenues
from the Utilities increased $3,333,000 due to rate relief granted to 
BHC's Eastern Division effective August 1, 1997,
partially offset by the reduction in rates associated with the
repeal of the Connecticut gross earnings tax. Revenue from timber
processing decreased by $1,587,000 in 1998, the result of reduced
lumber prices due to market conditions and reduced sales volume.  


Operating expenses.  Operating expenses for 1998 were
$31,919,000, an increase of $1,116,000 from 1997.  Operating
expenses from real estate sales increased by $2,138,000 due to
the increased activity in the land sales program.  Operating
expenses from the Utilities increased $850,000 due to higher
operating expenses associated with the Warner Water Treatment 
Plant, which was placed into service on July 1, 1997.  Timber
processing experienced reduced operating expenses of $1,938,000
compared to 1997.  


General and administrative expenses.  General and administrative
expenses totaled $16,236,000 in 1998 compared to $15,620,000 in
1997, an increase of $616,000. Contributing to this increase was
a non-recurring charge incurred to release the Company from a
guarantee regarding a commercial lease on a former rental
property and a reserve related to the joint venture property
located in Shelton, Connecticut (see Note 4 to the financial
statements).  Offsetting these provisions were reduced insurance
costs, lower healthcare costs and a higher pension credit.

                                9
<PAGE>
<PAGE>

Depreciation expense.  Depreciation expense increased by
$1,146,000 to $13,770,000 in 1998, principally due to the Warner
Water Treatment Plant, which was placed into service on July 1,
1997, and general utility plant additions.

<TABLE>
<CAPTION>
                                 Depreciation Expense

                                    (In thousands)
<S>                            <C>                                <C>
                               1994                               $9,852

                               1995                               $10,123
                                   
                               1996                               $11,077

                               1997                               $12,624

                               1998                               $13,770

</TABLE>

Interest  expense.   Interest expense for 1998 was $10,507,000, a
decrease  of  $680,000  from  1997,  due to reduced long-term and
short-term debt.   

Taxes other than income taxes.  Taxes other than income taxes for
1998  decreased  $1,317,000 from 1997 due primarily to the repeal
of the Connecticut Gross Earnings Tax for services rendered after
July 1, 1997, partly offset by higher property taxes.  

<TABLE>
<CAPTION>
               Earnings Before Interest, Taxes,
                 Depreciation and Amortization
<S>                             <C>                              <C>
                                1994                             $42,661

                                1995                             $43,754

                                1996                             $45,109

                                1997                             $51,549 

                                1998                             $58,424
</TABLE>


Allowance for funds used during construction. Allowance for funds
used during construction decreased by $559,000 to $200,000 in
1998 compared to 1997.  The reduction was the result of the
Warner Water Treatment Plant being placed into service on July 1,
1997.


Income taxes.  Income taxes for 1998 increased $2,179,000
compared to 1997, the result of higher taxable income.  


Significant Changes in Balance Sheet Accounts.


     The decrease in notes payable to banks of $9,000,000
reflects a reduction in short term debt, the result of increased
cash flow from operating activities net of capital additions and
proceeds received from land sales.


1997 compared with 1996

Overview.  The Company's consolidated net income for 1997 was
$15,011,000 compared with consolidated net income of $9,005,000
in 1996.  Basic earnings per share was $2.10 in 1997 based on a
weighted average of 7,139,894 common shares outstanding, compared
with $1.30 in 1996 based on a weighted average of 6,931,388
common shares outstanding. Diluted earnings per share for 1997
was $2.08 based on a weighted average of 7,215,626 common shares
outstanding compared to diluted earnings per share of $1.29 in
1996 based on a weighted average of 6,974,563 common shares
outstanding. For the year ended December 31, 1996, the Company
recorded an after-tax loss of $4,255,000 from the sale of IEA
(see Note 2 to the financial statements).

For the year ended December 31, 1997, net income from
continuing operations was $15,011,000, or $2.10 per share, versus
$13,840,000, or $2.00 per share in 1996.  Operating results in
1997 reflect the increase in water service rates to cover the
operating costs of the Warner Water Treatment Plant for six
months and drier weather, which increased earnings from the
Company's water utility segment.

Operating revenues.  Consolidated operating revenues of
$107,102,000 in 1997 were $12,298,000 higher than 1996.  Revenues 
from the Utilities increased $5,609,000, due to the increase in
water service rates, drier weather and the May 1996 acquisition
of SCWC.  Timber processing experienced an increase in revenues
during 1997 of $4,898,000, primarily due to increased sales to a
leading retailer in the home improvement industry.  Aquarion also
had increased property sales revenues of $1,325,000 in 1997.


Operating expenses.  Operating expenses for 1997 were
$30,803,000, an increase of $6,786,000 over 1996.  Timber
processing experienced increased operating expenses of $4,376,000
compared with 1996, primarily due to higher costs associated with
the increased sales volume.  Operating expenses from property
sales increased by $1,255,000 due to the increased activity in
the land sales program.


General and administrative expenses.  General and administrative
expenses totaled $15,620,000, a $576,000 decrease from 1996. 
This decrease was primarily attributable to a higher pension
credit, as well as lower health care costs at the Utilities,
partially offset by a non-recurring increase in bad debt expense
in 1997.

Depreciation expense.  Depreciation expense increased $1,547,000
in 1997, which was largely the result of the Warner Water
Treatment Plant being placed into service on July 1, 1997, and a
higher composite annual depreciation rate for BHC's Eastern
Division effective August 1, 1996.

Interest expense.  Interest expense for 1997 was $1,876,000
higher than 1996 due to the interest expense associated with the
October 1996 debt issuance by BHC of $30,000,000 and the interest
rate conversion on the 1995 $30,000,000 unsecured note of BHC
from a variable rate to a fixed rate of 6.15 percent.

Taxes other than income taxes.  Taxes other than income taxes for
1997 were $1,502,000 lower than 1996, due primarily to the repeal
of the Connecticut gross earnings tax for services rendered after
July 1, 1997. 


Allowance for funds used during construction. Allowance for funds
used during construction decreased by $364,000 to $759,000 in
1997 compared to 1996.  The reduction was the result of the
Warner Water Treatment Plant being placed into service on July 1,
1997.


Income taxes.  Income taxes for 1997 increased $2,632,000 as a
result of higher taxable income.


Seasonality
The Company's operating results are subject to weather
variations and seasonal fluctuations, due to an increased demand
for water in the warmer months. (See Supplemental Financial
Information to Consolidated Financial Statements for selected
quarterly data for 1998 and 1997.)

Forward-Looking Statements.
In addition to the historical information contained herein,
this report contains a number of "forward-looking statements,"
within the meaning of the Securities and Exchange Act of 1934. 
Words such as "estimates", "expects", "anticipates", "intends",
plans  and similar expressions identify forward-looking
statements.  Such statements address future events and conditions
concerning the adequacy of water supply and utility plant,
capital expenditures, earnings on assets, liquidity and capital
resources, rates and accounting matters.  Actual results in each
could differ materially from those included in such forward-
looking statements. 

                                   10

<PAGE>
 
<PAGE>


<TABLE>
<CAPTION>

                          Aquarion Company and Subsidiaries
                          Consolidated Statements of Income

In thousands, except share data             1998        1997        1996
Year ended December 31
-----------------------------------------  --------    --------    --------
<S>                                        <C>         <C>          <C>
Operating revenues                         $115,669    $107,102     $94,804
Costs and expenses:
  Operating                                  31,919      30,803      24,017
  General and administrative                 16,236      15,620      16,196
  Depreciation                               13,770      12,624      11,077
  Interest expense                           10,507      11,187       9,311
  Taxes other than income                     9,383      10,700      12,202
                                           --------    --------     -------
Total costs and expenses                     81,815      80,934      72,803
                                           --------    --------     -------
                                             33,854      26,168      22,001
Allowance for funds used during 
 onstruction                                    200         759       1,123
                                            -------     -------     -------
Income before income taxes                   34,054      26,927      23,124

Income taxes                                 14,095      11,916       9,284
                                            -------     -------     -------
Net income from continuing operations        19,959      15,011      13,840
Discontinued operations:
   Loss from discontinued operations,
    less applicable income tax 
    benefit of $66                                -           -        (580)
   Loss on disposal of discontinued
    operations, less applicable                   -           -      (4,255)
    income tax benefit of $5,695
                                           --------    --------   ---------
Net income                                 $ 19,959    $ 15,011   $   9,005
                                           ========    ========   =========
Basic earnings (loss) per share:
   From continuing operations              $   2.69    $   2.10   $    2.00  
   From discontinued operations                   -           -       (0.09) 
   From disposal of discontinued
    operations                                    -           -       (0.61) 
                                           --------    --------   ---------
Basic earnings per share                   $   2.69    $   2.10   $    1.30
                                           --------    --------   ---------
Weighted average common shares 
 outstanding                              7,423,460   7,139,894   6,931,388
                                          =========   =========   =========
Diluted earnings (loss) per share:

  From continuing operations              $    2.62    $   2.08   $    1.98  
  From discontinued operations                    -           -       (0.08) 
  From disposal of discontinued operations        -           -       (0.61) 
                                           --------    --------   ---------
Diluted earnings per share (Note 7)       $    2.62    $   2.08   $    1.29
                                           --------    --------   ---------    
Weighted average common shares           
 outstanding                              7,611,723   7,215,626  6,974,562  
                                          =========   =========  =========
</TABLE>

The accompanying notes are an integral part of these consolidated
financial statements.  


<TABLE>
<CAPTION>

                 Aquarion Company and Subsidiaries
                    Consolidated Balance Sheets


Assets
In thousands                                    1998       1997
December 31,
-----------------------------------------     --------   --------
<S>                                           <C>        <C>
Property, plant and equipment                 $493,279   $481,833
Less:  accumulated depreciation                146,034    142,125
                                              --------   --------
   Net property, plant and equipment (Note     347,245    339,708
     14)
Current assets:
   Cash and cash equivalents                       654        851
                                              --------   --------

   Accounts receivable                          11,325     10,789
   Less:  allowance for doubtful accounts        1,976      1,782
                                              --------   --------
                                                 9,349      9,007
   Accrued revenues                              9,406     10,411
   Inventories (Note 15)                         4,526      3,740
   Prepaid expenses                             12,924     10,980
   Other current assets                          4,626      6,443
                                              --------   --------
      Total current assets                      41,485     41,432
Prepaid taxes                                   11,834     12,354
Recoverable income taxes                        39,022     41,741
Other assets                                    17,894     19,774
                                              --------   --------
                                              $457,480   $455,009
                                              ========   ========
</TABLE>

The accompanying notes are an integral part of these consolidated
 financial statements. 

<PAGE>
 

<TABLE>
<CAPTION>
                        Aquarion Company and Subsidiaries
                           Consolidated Balance Sheets

Liabilities and Shareholders' Equity
In thousands, except share data                          1998       1997
December 31,
--------------------------------------------------   ----------   ----------
<S>                                                  <C>          <C>
Shareholders' equity:
Preferred stock, no par value, authorized             $      -    $      -  
  2,500,000 shares not to exceed aggregate 
  value of $25,000,000--none issued
Common stock, stated value:  $1
  Authorized--16,000,000 shares
  Issued 7,507,198 shares in 1998 and                     7,507      7,331
  7,330,721 shares in 1997

Capital in excess of stated value                       112,135    107,004
Retained earnings                                        27,297     19,624
Less:  minimum pension liability adjustment                  99         97
                                                      ---------  ---------
   Total shareholders' equity                           146,840    133,862
                                                      ---------  ---------
Long-term debt                                          141,380    151,380
                                                      ---------  ---------
Current liabilities:
   Short-term borrowings, unsecured                           -      9,000
   Current maturities of long-term debt                  10,000      5,000
   Accounts payable and accrued liabilities              14,868     15,592
   Dividends payable                                      3,115      3,005
   Accrued interest                                       2,834      3,011
   Taxes other than income taxes                            887        755
   Income taxes                                           3,782      2,018
                                                       --------   --------
      Total current liabilities                          35,486     38,381
                                                       --------   --------
Advances for construction                                19,638     24,263
Contributions in aid of construction                     38,097     30,951
Deferred land sale gains                                  1,658        384
Accrued postretirement benefit cost                       5,165      4,664
Recoverable income taxes                                  5,930      6,052
Deferred income taxes                                    63,286     65,072
Commitments & contingencies (Note 17)
                                                       --------    -------     
                                                       $457,480   $455,009


</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements. 

                                     11

<PAGE>
 
<PAGE>
<TABLE>
<CAPTION>

                                          Aquarion Company and Subsidiaries
                                      Consolidated Statements of Cash Flows

In thousands                                      1998       1997      1996
Year ended December 31
                                               --------   --------   -------
<S>                                            <C>        <C>       <C>
Cash flows from operating activities:
Net income                                     $19,959    $15,011   $ 9,005
Adjustments reconciling net income to net
  cash provided by operating activities
  Depreciation and amortization                 14,532     13,435    13,797
  Proceeds from sale of surplus land, net of  
  gains                                          5,490      1,796       778
  Loss on disposal of discontinued operation         -          -     4,255
  Provision for losses on accounts            
   receivable                                      397        894      (29)
    receivable
  Deferred tax provision                         1,331      1,214        45
  Allowance for funds used during                  
   construction                                   (200)      (759)    (1,123)
Change in assets and liabilities (Note 16)      (4,453)     7,166     (3,239)
                                                -------    ------     ------
     Net cash provided by operating activities  37,056     38,757     23,489
                                                ------     ------     ------
Cash flows from investing activities:
   Capital additions, excluding an allowance
    for funds used during construction         (21,245)   (28,729)  (38,600)
   Acquisition of business, less cash acquired       -          -    (2,598)

   Advances and contributions in aid of            
    construction                                 3,011       3,217    2,626
   Refunds on advances for construction           (490)      (374)     (933)
   Other investing activities, net               2,340       (153)   (1,202)
                                                ------     -------   ------
       Net cash used in investing activities   (16,384)   (26,039)  (40,707)
                                               =======    =======   =======
Cash flows from financing activities:
   Proceeds from the issuance of long-term debt      -      7,893    31,518
   Proceeds from the issuance of common          5,307      5,895     3,290
            stock, net
   Net (repayments) borrowings of short-term    (9,000)        700   (5,000)
      debt
   Common dividends paid                       (12,176)   (11,549)  (11,198)

   Principal and premium payments on long-      (5,000)   (15,000)      (52)
     term debt
   Debt issuance costs                               -        (276)   (1,220)
   Payments for redemption of preferred stock        -           -      (285)
                                               -------    --------   -------
   Net cash (used in) provided by
   financing activities                        (20,869)    (12,337)   17,053
                                               -------    --------   ------- 
   Net (decrease) increase in cash and cash
     equivalents                                  (197)        381      (165)
   Cash and cash equivalents, beginning of year    851         470       635
    year
                                               -------    --------  --------
   Cash and cash equivalents, end of year      $   654     $   851  $    470
                                               =======    ========  ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements. 

<PAGE>
 

<TABLE>
<CAPTION>     
             Aquarion Company and Subsidiaries
        Consolidated Statements of Shareholders' Equity

In thousands, except share data                                         
                                                          
                                                                                 Minimun     Treasury Stock    Total 
                                   Common Stock         Capital                 pension                        share-
                                   Number     Stated   in excess of  Retained   liabiity      Number          holders'        
                                  of Shares    value   stated value  Earnings  adjustment   of shares Amount   equity 
<S>                               <C>          <C>       <C>         <C>       <C>           <C>     <C>        <C>

Balance, December 31, 1995        6,936,574    $6,937    $ 98,213    $18,583   $        -    81,291  $(2,231)  $121,502
Year ended December 31, 1996
Net income                                -         -           -      9,005            -         -        -      9,005
Dividends on common stock                 -         -           -   (11,264)            -         -        -    (11,264)
Dividend reinvestment plan          143,781       143       3,147          -            -         -        -      3,290

Minimum pension liability                                                                 
 adjustment (Note 12)                     -         -           -          -         (104)        -         -      (104)
Treasury stock transactions               -         -           -          -            -  (19,793)       522       522
                                  ---------    ------    --------   --------      -------   -------   -------    -------          
Balance, December 31, 1996        7,080,355     7,080     101,360     16,324        (104)    61,498   (1,709)    122,951
                                  ---------    ------     -------   --------      -------   -------   -------    -------
Year ended December 31, 1997
Net income                                -         -           -     15,011            -         -         -       15,011
Dividends on common stock                 -         -           -   (11,711)            -         -         -     (11,711)
Dividend reinvestment plan          135,829       136       3,361          -            -         -         -        3,497
Minimum pension liability                         
  adjustment (Note 12)                   -         -           -           -             7         -          
Stock options exercised             114,537       115       2,283          -            -   (61,280)     1,703       4,101
                                                                                                     
Treasury stock transactions (1)           -         -           -          -            -     (218)         6            6
                                  ---------     -----     -------   --------        ------    -----    --------   ---------
Balance, December 31, 1997        7,330,721     7,331     107,004     19,624         (97)         -          -      133,862
                                  ---------     -----     -------    -------        ------    -----    --------   ---------

Year ended December 31, 1998
Net income                                -         -           -     19,959            -         -        -       19,959
Dividends on common stock                 -         -           -   (12,286)            -         -        -     (12,286)
Dividend reinvestment plan          119,865       120       3,814          -            -         -        -        3,934

Minimum pension liability                 -         -           -          -          (2)         -        -          (2)
adjustment (Note 12)

Stock options exercised              56,612        56       1,317          -            -         -        -        1,373
                                  ---------    ------    --------    -------       ------     -----   -------    --------
Balance, December 31, 1998        7,507,198    $7,507    $112,135    $27,297       $ (99)            $      -    $146,840
                                  =========    ======    ========    =======       ======     =====  ========    ========

                                                                                  (1) Includes exercise of stock options
</TABLE>
The accompanying notes are an integral part of these consolidated financial 
statements. 
                                   12
<PAGE>
 
<PAGE>

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1 - Summary of Significant Accounting Policies


     Aquarion Company (Aquarion or the Company) is a holding
company whose subsidiaries are engaged both in the regulated
utility business of public water supply as well as in various
nonutility businesses.  Aquarion's utility subsidiaries, BHC
Company (BHC) and Sea Cliff Water Company (SCWC) (collectively,
the Utilities) collect, treat and distribute water to
residential, commercial and industrial customers, to other
utilities for resale, and for private and municipal fire
protection. The Utilities provide water to customers in 33
communities in Connecticut and Long Island, New York, including
communities served by other Connecticut utilities to which water
is available on a wholesale basis for backup supply and peak
demand purposes through BHC's Southwest Regional Pipeline.  BHC
is the largest investor-owned water company in Connecticut and
with SCWC, is among the 10 largest investor-owned water companies
in the nation.  The Utilities are regulated by several
Connecticut and New York agencies, including the Connecticut
Department of Public Utility Control (DPUC) and the New York
Public Service Commission (PSC).  The Company conducts a timber
processing business, Timco, Inc. (Timco), owns a real estate
subsidiary, Main Street South Corporation (MSSC) and provides
utility management services through Aquarion Management Services,
Inc. (AMS).


     The Company's accounting policies conform to generally
accepted accounting principles and, as applied in the case of
rate-regulated public utilities, include SFAS 71  Accounting for
the Effects of Certain Types of Regulation  and comply with the
Uniform System of Accounts and ratemaking practices prescribed by
the regulatory authorities.  A description of Aquarion's
principal accounting policies follows.

Principles of consolidation.  The consolidated financial
statements include the accounts of the Company and its majority- 
owned subsidiaries.  All significant intercompany accounts and
transactions have been eliminated.


Property, plant and equipment.  Property, plant and equipment is
stated at cost. The costs of additions to and replacements of
retired units of property are capitalized.  Costs include charges
for direct material, labor and services, and indirect charges
related to construction, such as engineering, supervision,
payroll taxes and employee benefits.  BHC also capitalizes an
allowance for funds used during construction (AFUDC) equivalent
to the cost of funds devoted to plant under construction. 
Modifications and improvements to units of property are
capitalized. Expenditures for repairs and maintenance are charged
to expense as incurred.

    At the time depreciable utility property is retired or
disposed of, the book cost together with the related costs of
removal, less salvage, is charged to the reserve for depreciation
in accordance with the Uniform System of Accounts prescribed by
the regulatory authorities.  Upon disposal or retirement of
depreciable nonutility property, the appropriate plant accounts
and accumulated depreciation are reduced by the related costs,
with any resulting gain or loss recognized in the consolidated
statements of income.

               
    For financial reporting purposes, depreciation is provided
for by use of the straight-line method over the estimated service
lives of the respective assets.  The equivalent composite
depreciation rate was 3.0 percent for 1998 and 1997.  For income
tax purposes, the Company uses various accelerated tax lives and
rates as allowed under the Internal Revenue Code.


    Cash equivalents.  The Company considers all highly liquid
investments that have a maturity of three months or less when
purchased to be cash equivalents.


Earnings per share.  Earnings per share is based on the annual
weighted average number of shares outstanding and common share  
equivalents.  Common share equivalents consist of outstanding
employee stock options and directors fees paid in common stock
units.  Each common stock unit is convertible into one share of
common stock at the holder s discretion.  In February 1997, the
Financial Accounting Standards Board (FASB) issued SFAS No. 128,
"Earnings Per Share" (SFAS 128), which establishes new standards
for computing and presenting basic and diluted earnings per
share. The Company has adopted SFAS 128 effective for financial
statements issued for periods ending after December 15, 1997 (see
Note 7 to the financial statements).


Allowance for funds used during construction.  AFUDC is a non-
cash credit to income with a corresponding charge to utility
plant, which represents the cost of borrowed funds and a return
on equity funds utilized to fund plant under construction.  BHC
records AFUDC to the extent permitted by regulatory authorities.
Construction-work-in-progress surcharge.  The DPUC regulations
allow water utilities to implement a CWIP rate surcharge to
customer water bills in order to recover 90 percent of the
carrying costs of capital used in SDWA-mandated projects, until
such time as these projects are completed.  The CWIP rate
surcharge is in lieu of AFUDC and is included in water service
revenues.


Revenue recognition.  The Utilities recognize revenue as
customers are billed periodically for water consumed.  The
Utilities also accrue revenue for the estimated amount of water
consumed but not billed at the end of each period.  Timber
processing revenues are recognized as the related timber products
are shipped. Revenues from sales of real estate are recognized
when the transaction is consummated and title has passed.

   Inventories.  Inventories are recorded at the lower of cost or
market value, with cost being determined on the basis of the
first-in, first-out" (FIFO) method.  Materials and supplies are
valued at average cost. 


Other assets.  Other assets consist primarily of deferred
financing charges, rate case and other expenses to be amortized
over periods allowed by the regulatory authority. Deferred rate
case expenses are amortized over periods allowed by the
regulatory authority, generally one to three years.  Deferred
financing charges are amortized over the lives of the related
debt issues, primarily 30 to 40 years.
           

Fair value of financial instruments.  The carrying amount of cash and cash
equivalents, trade accounts receivable, trade accounts payable and short-term
borrowings approximate their fair values due to their short-term nature.  The
fair value of long-term debt, which is based on the quoted market prices for
the same or similar issues or on the current rates offered to the Company for
debt of the same remaining maturities, was as follows at December 31:

<TABLE>
<CAPION>
        
       
             (In thousands)               1998       1997
            <S>                         <C>        <C>
            Fair Value                  $141,311   $138,970

            Carrying Value               141,380    151,380

</TABLE>
        
Advances for construction/contributions in aid of construction. 
The Utilities receive cash advances from developers and customers
to finance construction of new water main extensions.  These
advances are partially refunded over a 10-year period as water
revenues are earned from those new customers.  Any remaining
unrefunded balances are reclassified to contributions in aid of
construction in the consolidated balance sheets and are no longer
refundable.


Income taxes.  The Company and its eligible subsidiaries file a
consolidated federal income tax return.  Federal income taxes are
deferred under the liability method in accordance with SFAS No.
109, "Accounting for Income Taxes."  Under the liability method,
deferred income taxes are provided for all temporary differences
between financial statement and tax bases of assets and
liabilities at current tax rates. Additional deferred income
taxes and offsetting regulatory assets or liabilities are
recorded to recognize that income taxes will be recoverable or 
refundable through future revenues.


    Investment tax credits arising from property additions are
deferred and amortized over the estimated service lives of the
related properties (see Note 6 to the financial statements).


Accounting for long-lived assets.  SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," (SFAS 121) requires that certain assets be
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. SFAS 121 amends SFAS 71 to require that
regulatory assets be charged to earnings if such assets are no
longer considered probable of recovery.  At December 31, 1998,
the Company considers these assets probable of recovery.
Segment related information.  In June 1997, the FASB issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (SFAS 131), which establishes standards for the
method of reporting information about operating segments in
annual financial statements and in interim reports issued to
shareholders (see Note 11 to the financial statements).  This
statement is effective for financial statement periods beginning
after December 15, 1997.  Adoption of this statement did not have
a significant impact on the Company's disclosures of segment
related information. 

Accounting for derivative instruments.  In June 1998, the FASB
issued SFAS No. 133,  Accounting for Derivative Instruments and
Hedging Activities  (SFAS 133) which establishes a new model for
accounting for derivatives and hedging activities and supersedes
and amends a number of existing standards. SFAS 133 is effective
for fiscal years beginning after June 15, 1999.  Upon initial
application, all derivatives are required to be recognized in the
statement of financial position as either assets or liabilities
and measured at fair value.  Changes in the fair value of
derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction, and, if it is, the
type of hedge transaction. In addition, all hedging relationships
must be reassessed and documented pursuant to the provisions of
SFAS 133.  The Company does not expect adoption of this statement
to have a significant impact on its financial position or results
of operations.


Estimates.  The accompanying consolidated financial statements
reflect judgements and estimates made in preparation of these
statements and in the application of the above accounting
policies.  Actual results may differ from these estimates. 


Note 2 - Sale and Discontinued Operations


    On March 25, 1997, the Company executed the stock purchase
agreement, effective December 31, 1996, completing the stock sale
of Industrial and Environmental Analysts, Inc. (IEA), its
environmental testing laboratory business for approximately
$10,000,000.  Accordingly, IEA's results were recorded as a
discontinued operation for the year ended December 31, 1996.  
The Company recorded an after tax loss of $4,255,000, or $0.61 per
share, from the sale of the discontinued operation in 1996.   

                                13
<PAGE>
 
<PAGE>


Note 3 - Regulatory Matters


Rates.  On March 16, 1998, BHC s Western division filed an
application with the DPUC for a 4.1 percent water service rate
increase designed to provide a $620,000 increase in annual water
service revenues.  It is anticipated that the new rates, if
approved, will become effective in the first quarter of 1999.


    On July 31, 1997, BHC's Eastern division received a decision
from the DPUC approving a 12.7 percent water service rate
increase, which became effective on August 1, 1997, designed to
provide an $8,300,000 increase in annual water service revenues. 
This increase replaced the CWIP rate surcharge, which was
9.5 percent prior to July 1, 1997, resulting in a 3.2 percent
marginal increase.  


     BHC's Eastern and Western Divisions' rates reflect the
repeal of the Connecticut gross earnings tax for services
rendered after July 1, 1997, which resulted in a 5.0 percent
reduction in both rates and expenses.  

               
   On July 31, 1996, BHC s Eastern division received approval
from the DPUC for a 6.5 percent water service rate increase
designed to provide a $4,000,000 increase in annual water service
revenues.
               

   On October 1, 1996, the Ridgefield Water Supply Company,
which has subsequently been merged into BHC, entered into a
Consent Agreement with the State of Connecticut, Department of
Environmental Protection (DEP), relating to certain water supply
sources located in the Town of Ridgefield.  The Consent Agreement
requires BHC to meet various milestones by particular dates in
order to bring BHC s Ridgefield water system into compliance with
DEP s diversion regulations. BHC s failure to timely comply with
many of the requirements of the Consent Order now permits DEP to
require BHC to pay certain fines. BHC s potential maximum
exposure to such fines could be in excess of $4,000,000.  BHC has
recently been informed that this matter has been referred by DEP 
to the Office of the Connecticut Attorney General for further
action.  BHC is unable to assess at this time what impact the DEP
referral to the Attorney General will have on BHC s ability to
re-negotiate the Consent Agreement or on its potential liability
for such civil penalties.  
               

Note 4 - Sale of surplus land


    Proceeds from the sale of land are recorded as revenue at
the time of closing, and portions of pre-tax gains required to be
deferred by the DPUC are amortized as a reduction in BHC's
operating expenses over various time periods as stipulated by the
DPUC.


    The Company sold 436 acres of surplus land in 1998.  On
December 18, 1998, five parcels of land, located in Shelton,
Connecticut and totaling 401 acres, were sold to the City of
Shelton for approximately $6,800,000. The Company received
$2,268,000 in cash and a note receivable for the balance, which
will be paid in two equal installments of $2,266,500 in
December 1999 and July 2000.  After-tax net gain attributable to
the sale amounted to $3,510,000.  A 30-acre parcel of land,
originally scheduled to be included in this sale, is expected to
close in early 1999, after BHC receives the necessary permits
from the Connecticut Department of Health Services. 

    In addition, the Company sold approximately 35 acres of
surplus land with proceeds totaling $3,067,000.  Total gains,
including recognition of deferred gains from prior land sales of
$130,000, approximated $826,000.  

               
    In June 1998, the Aspetuck Land Trust, a non-profit land
preservation organization, exercised a statutory right of first
refusal allowing it to purchase, at the original contract terms,
substantially all of the Trout Brook Valley property for
approximately $12,400,000.  Connecticut statutes afford the buyer
fifteen months to close, or until September 8, 1999.  As of
December 31, 1998, the Company received $1,400,000 on deposit 
from the Aspetuck Land Trust.  Prior to this exercise, in
February 1997, the Company had entered into a contract to sell
the Trout Brook Valley property for approximately $14,000,000 to
a private developer.  The sale has been approved by the DPUC. The
Town of Weston, Connecticut has notified the Company of its
intention to purchase, for approximately $820,000, the
approximately 45 acre portion of BHC s Trout Brook Valley
property located in Weston pursuant to its statutory right of
first refusal.  Although both BHC and the Aspetuck Land Trust
have no objection to this purchase, BHC has indicated that it
will only sell the Weston portion at or after the closing of the
sale of the remainder of its Trout Brook Valley property.  BHC
has recently filed a request with the DPUC for a declaratory
ruling to the effect that the Town of Weston is not entitled to
purchase only the Weston property.   The Company anticipates that
the after-tax gain from the current sale will be approximately
$6,000,000, to be recognized over an applicable amortization
period.  In its decision approving the original sale, the DPUC
granted the Company a 10-year amortization period, which provides
ratepayers with 55 percent and shareholders with 45 percent of
the after-tax gain on approximately 60 percent of BHC s portion
of the property.  Due to the change in purchaser and its intended
use of the property as open space, the Company is considering
filing an amended application with the DPUC seeking a shorter
amortization period.
             

    In 1995, the Company entered into an agreement with a local
developer to sell a 40-acre parcel of land located in New Canaan,
Connecticut, for approximately $1,950,000.  The Company
anticipates that the after-tax gain from this transaction will be
approximately $1,100,000.  The sale has been approved by the
DPUC.  The buyer has been involved in litigation and appeals with
several residents, environmental groups and the Connecticut
Department of Environmental Protection over regulatory approvals. 
Although several appeals have been withdrawn, certain issues
remain open.  The Company anticipates closing this transaction
sometime in 1999, however, the closing could be delayed due to
the opposition to granting the required permits and approvals.  
No assurances can be given at this time that such permits and
approvals will be granted.

                
    MSSC owns a two-third's share, through a joint venture, of
approximately 7.7 acres of real property in Shelton, Connecticut. 
In December 1997, the joint venture was formally notified of an
eminent domain action undertaken on behalf of the City of
Shelton, with an accompanying notice of value of approximately
$95,000.  Although the Company does not concur with this value
and has initiated an appeal process to obtain a higher value for
this property, the Company reserved for the difference between
the carrying value of the investment and its estimated net
realizable value.


     In 1997, the Company sold approximately 134 acres of surplus
land with proceeds totaling $3,224,000.  Total gains, including
recognition of deferred gains from prior land sales of $133,000,
approximated $743,000.


    In 1996, the Company sold approximately 32 acres of surplus
land with proceeds totaling $929,500.  Total gains, including
recognition of deferred gains from prior land sales of $134,000,
approximated $434,000.  In addition, the Company recognized a
gain of $320,000 from the condemnation, by the City of Stamford,
of the former headquarters of SWC.


Note 5 - Acquisitions


   On May 30, 1996, the Company acquired Sea Cliff Water
Company, a subsidiary of Emcor Group, Inc., for approximately
$2,600,000 in cash. SCWC, which has approximately 4,300
customers, serves a portion of Nassau County in Long Island, New
York, and has approximate annual revenues of $2,000,000.

Note 6 - Income taxes


Income tax expense for the three years ended December 31, 
consisted of the following:

<TABLE>
<CAPTION>

In thousands                                      1998       1997      1996
----------------------------------------------   --------  --------   --------
<S>                                              <C>        <C>       <C>
Current:
   Federal                                        $10,012    $ 8,477   $ 1,199
   State                                            2,839      2,692     2,234
                                                  -------   --------  --------
       Total current                               12,851     11,169     3,433
Deferred:
   Federal                                          1,099        991       277
   State                                              145       (244)     (187)
                                                  -------   --------   -------
       Total deferred                               1,244        747        90
                                                  -------   --------   -------
Total income tax expense                          $14,095    $11,916    $3,523
                                                  =======    =======   =======
</TABLE>

A reconciliation of income tax expense at the statutory
federal income tax rate to the actual income tax expense for the
three years ended December 31, is as follows:

<TABLE>
<CAPTION>

In thousands                                      1998       1997       1996
-----------------------------------------------   -------   --------  --------
<S>                                               <C>       <C>       <C>
Tax at statutory rate                             $11,919     $9,424    $4,384
Increase (reductions) in taxes resulting from:
   State taxes, net of federal income taxes         1,940      1,592     1,331
   Excess depreciation and basis amortization         858        840       700
   Investment tax credit                            (152)      (152)     (152)
   Excess tax basis on disposition                      -          -   (2,213)
   Charitable contribution                          (910)          -         -
   Other items, net                                   440        212     (527)
                                                  -------    -------   -------
Actual income tax expense                         $14,095    $11,916    $3,523
                                                  -------    -------   -------
</TABLE>

Deferred tax liabilities (assets) at December 31, were
comprised of the following:

<TABLE>
<CAPTION>

In thousands                                      1998       1997       1996
---------------------------------------------    -------     -------   -------
<S>                                              <C>         <C>       <C>
Utility temporary difference                      $37,827    $40,507   $43,679
Depreciation                                       22,766     22,573    20,168
Investment tax credits                              1,391      1,409     1,225
Other                                               1,302        583     1,506
                                                  -------    -------   -------
Gross deferred tax liabilities                     63,286     65,072    66,578
                                                  -------    -------   -------
Contributions in aid of construction              (7,244)    (7,315)   (7,934)
Other                                             (4,590)    (5,039)   (4,237)
                                                  -------    -------   -------
Gross deferred tax assets                        (11,834)   (12,354)  (12,171)
                                                 --------   --------   -------
                                                 $51,452    $52,718   $54,407
                                                 ========   =======   ========
</TABLE>
                                     14
<PAGE>
<PAGE>

Note 7 - Earnings per share


   In accordance with SFAS 128, the following table presents
the calculation of the basic and diluted earnings per share for 
income from continuing operations:

<TABLE>
<CAPTION>


In thousands, except share data             Income     Shares       Per-Share
                                        (Numerator)  (Denominaotr)   Amount
<S>                                     <C>           <C>           <C>
For the year ended December 31, 1998
Basic earnings per share
   Net income from continuing operations  $19,959         7,423       $2.69
                                                                     ------
   Effect of dilutive common stock              
     equivalents                                -           189
------------------------------------------------------------------
Diluted earnings per share
   Net income from continuing operations
    giving effect to dilutive common       
    stsock equivalents                    $19,959         7,612       $2.62
------------------------------------------------------------------------------
For the year ended December 31, 1997
Basic earnings per share
   Net income from continuing operations  $15,011         7,140       $2.10
   Effect of dilutive common stock              
    equivalents                                 -            76
------------------------------------------------------------------
Diluted earnings per share
   Net income from continuing operations
    giving effect to dilutive common      
    stock equivalents                      $15,011         7,216       $2.08
----------------------------------------------------------------------------    
For the year ended December 31, 1996
Basic earnings per share
   Net income from continuing operations   $13,840         6,931       $2.00
                                                                       -----
   Effect of dilutive common stock                    
    equivalents                                  -            43
------------------------------------------------------------------
Diluted earnings per share                                                    
   Net income from continuing operations
    giving effect to dilutive common                             
    stock equivalents                      $13,840          6,974     $1.98
--------------------------------------------------------------------------------
</TABLE>


Options to purchase 159,200 shares of Common Stock at $37.75
per share were outstanding at December 31, 1998 but were not
included in the computation of diluted earnings per share because
the options  exercise price was greater than the average market
price of the Common Shares.  These options expire on December 14,
2008.  

Note 8 - Long-term debt

<TABLE>
<CAPTION>

         Long-term debt at December 31, consisted of the following:


In thousands                                           1998       1997
<S>                                                 <C>        <C>
First mortgage bonds
Series R, 6.875%, due November 1, 1998              $     -    $   5,000
Notes payable - unsecured
5.95% senior note due January 4, 1999                  10,000     10,000
9.55% senior notes due February 1, 2021                20,000     20,000
7.25% note due June 1, 2020 (a)                         7,000      7,000
5.5% note due June 1, 2028 (b)                         12,000     12,000
5.6% note due June 1, 2028 (b)                         10,000     10,000
5.3% note due September 1, 2028                         8,980      8,980
5.8% note due March 1, 2029 (b)                         7,700      7,700
6.05% note due March 1, 2029 (b)                       10,000     10,000
6.15% note due April 1, 2035 (c)                       30,000     30,000
6.00% note due September 1, 2036                       30,000     30,000
4.00% note due November 1, 2004 (d)                     5,700      5,700
                                                    ---------   --------  
                                                     $151,380   $156,380
Less: Amounts due within one year                      10,000      5,000
                                                      -------   --------
                                                     $141,380   $151,380
                                                     ========   ========
</TABLE>

     (a)   BHC has the option to redeem this note at a redemption price
ranging from 102 percent on June 1, 2000, to 100 percent on June 1, 2002 and
thereafter.


     (b)   These BHC financings are insured as to the payment of principal
and interest by Municipal Bond Investors Assurance Corporation.

      (c)   On February 3, 1997, BHC converted the interest rate on its
$30,000,000 unsecured note from a weekly rate to a fixed rate of 6.15 percent.


      (d)   This Timco financing bears interest at a rate adjusted each
November 1 until such time as Timco elects to convert to a fixed rate.  On 
November 1, 1998, the interest rate changed to 4.0 percent from 4.25 percent. 
Bondholders may elect to have their bonds redeemed at a price equal to 100
percent of the principal amount on each November 1, until conversion of the
interest rate on the bonds to a fixed rate. 


     The Aquarion and subsidiaries note agreements contain
certain covenants typical of such agreements, the most
restrictive of which are under the 9.55 percent unsecured BHC
Senior Notes and the 5.95 percent unsecured Aquarion Senior Note
and require the maintenance of total funded debt to total
capital, as defined, of no more than 66 2/3 percent. 
Additionally, payment of dividends on Aquarion's common stock is
restricted under the Aquarion note.  At December 31, 1998,
approximately $43,705,000 was available to pay dividends as
defined under the Aquarion Note.  The aggregate maturities and
sinking fund requirements on long-term debt for each of the five
years succeeding December 31, 1998 are as follows: 1999-
$10,000,000;  2000, 2001, 2002 and 2003-zero.


Note 9 - Short-term borrowings


   Short-term borrowings result from Aquarion s relationships
with three banks, which provide, on an uncommitted basis, credit
availability aggregating $40,000,000 at December 31, 1998.
Short-term borrowings for the years ended December 31, were as
follows:

<TABLE>
<CAPTION

In thousands                                      1998       1997       1996
<S>                                             <C>          <C>        <C>
Borrowings outstanding at December 31           $       -     $9,000    $8,300
Weighted average interest rate at December 31           -      5.69%     6.06%
Maximum outstanding during the year               $10,000    $14,300   $29,200
Average outstanding during the year                $5,125     $7,550   $16,292
Weighted average interest rate during the year      5.59%       5.59%     5.51%

</TABLE>

Note 10 - Redeemable preferred stock and rights


The Company has reserved 100,000 shares of Preferred Stock for issuance 
under its Preferred Stock Purchase Rights Plan.  Each share of common stock is
entitled to one right to buy, under certain circumstances, 1/100th of a share
of Series B Junior Participating Preferred Stock, no par value (Series B
Preferred Stock), at $120.00 per 1/100th of a share.


     Each share of Series B Preferred Stock, if issued, would have dividend,
voting and liquidation rights, which are at least 100 times the equivalent
rights of one share of the Common Stock.  The rights would become exercisable
only if a person or group acquires 15 percent or more of the outstanding
Aquarion Common Stock, or if a person or group announces or commences a tender
or exchange offer for 15 percent or more of the Common Stock.  In the event
that any person or group of affiliated or associated persons becomes the
holder of a 15 percent or more position, each holder of a right, other than
rights beneficially owned by the 15 percent holder, will thereafter have the
right to receive upon exercise of a right at the then current exercise price
of the right, that number of shares of Common Stock having a market value of
two times the exercise price of the right.  If, after a person or group has
acquired 15 percent or more of the outstanding Common Stock, the Company were
to be acquired in a merger or other business combination transaction, each
right would entitle its holder (other than a 15 percent or greater
shareholder) to receive, upon payment of the exercise price, that number of
shares of the acquiring company having a market value equal to twice the
exercise price.


The Company may redeem the rights at $.01 per right at any
time before a 15 percent position has been acquired.  Until such
time as these rights become exercisable, they will have no
dilutive effect on the Company's earnings per share.


Note 11 - Industry segment information


   In accordance with SFAS 131, the Company s four industry segments are:


    Public water supply--collection, purification and
distribution of water for domestic commercial and industrial use,
and for private and municipal fire protection service;


    Timber processing--processing, marketing and distribution of 
lumber products; 


    Real Estate ownership, rental and sale of real property;
and,


    Utility management services--nonregulated water-related

services.
               

    The Company's industry segment information is as follows:

<TABLE>
<CAPTION>

In thousands                                      1998       1997      1996
------------------------------------------------  ------    -------   --------
<S>                                              <C>         <C>      <C>
Operating income (loss):

   Public water supply                            $37,572    $35,007   $29,485
   Timber processing                                1,430      1,200       968
   Real estate                                      5,065        727     1,420
   Utility management services                      (190)      (133)     (219)
                                                  -------    -------   -------
Industry segment operating income                  43,877     36,801    31,654
Interest expense                                 (10,507)   (11,187)   (9,311)
Allowance for funds used during construction          200        759     1,123
Other income (expenses), net                          484        554     (342)
                                                  -------   --------   -------
Income before income taxes                        $34,054    $26,927   $23,124
                                                  =======   ========   =======

</TABLE>

       The Company's operations take place in North America and no
single customer accounts for 10 percent or more of total
operating revenues.
                                       15
<PAGE>
<PAGE>

<TABLE>
<CAPTION>


In thousands                                      1998       1997      1996
-----------------------------------------------   -------   -------  -------
<S>                                               <C>       <C>      <C>
Segment assets:
   Public water supply                           $435,746   $430,425  $415,045
   Timber processing                               10,549      9,066     6,773
   Real estate                                      4,583      4,162     4,451
   Utility management services                        338      1,002       813
                                                 --------   --------  --------
      Subtotal                                    451,216    444,655   427,082
   Reconciling items                                6,264     10,354    22,010
                                                 --------   --------  --------
Total consolidated items                         $457,480   $455,009  $449,092
                                                 --------   --------  --------
Capital Expenditures:
   Public water supply                             20,195    $27,633   $37,185
   Timber processing                                1,047      1,075       666
   Utility management services                          3         21       749
                                                 --------   --------   -------
Total capital expenditures                        $21,245    $28,729   $38,600
                                                 --------   --------   -------
Depreciation expense:
   Public water supply                            $13,272    $12,171   $10,668
   Timber processing                                  481        434       389
   Real estate                                         11         11        11
   Utility management services                          6          8         9
                                                  -------    -------   -------
Total depreciation expense                        $13,770    $12,624   $11,077 
                                                  =======   ========  ========
</TABLE>


Reconciling items include assets of the parent company,
which are not allocated to a specific industry segment.  


Note 12 - Employee benefit plans


Retirement plans. The Company and certain of its subsidiaries
have a noncontributory defined retirement pension plan covering
qualified employees.  In general, Aquarion's policy is to fund
pension costs accrued.  Plan assets are primarily invested in
U.S. and foreign equities and debt securities issued by the U.S.
government and corporations.  The Company also has a supplemental
executive retirement plan and a directors' retirement plan, both
of which are unfunded defined benefit plans.  In addition,
certain subsidiaries have established defined contribution salary
deferral plans under Section 401(k) of the Internal Revenue Code.


Postretirement health care benefits.  Aquarion and the Utilities
provide health benefits for substantially all retired employees
and life insurance for a small group of retired individuals. 

Postretirement health benefits are not provided to employees
hired after July 1, 1996.  Only those employees hired prior to
July 1, 1996 who remain until retirement age are eligible.  Both
active and retired employees contribute a portion of the cost of
medical benefits.  The Company is funding its postretirement
health care benefits through contributions to a Voluntary
Employee Beneficiary Association Trust (VEBA).  The Company's tax
deductible contribution to the VEBA was $352,000 and $300,000 for
1998 and 1997, respectively.  Plan assets are primarily invested
in U.S. Government and Agency obligations.


Pension and postretirement benefits funded status and costs.

           
     The following table sets forth the funded status of the
Company's retirement plans and postretirement health care
benefits at December 31, the latest valuation date:

<TABLE>
<CAPTION>
                                                              Postretirement 
                                         Retirement Plans  Health Care Benefits
                                       ------------------- -------------------
In thousands                           1998        1997    1998          1997 
                                       ------------------- ------------------  
<S>                                    <C>       <C>       <C>         <C>
 
Changes in benefit obligation
Benefit obligation at beginning of    $29,671    $26,182    $10,666   $13,834 
year
Service cost                              958        878        278       315 
Interest cost                           2,136      1,938        749       701 
Amendments                                956        442       (534)        - 
Actuarial loss (gain)                   1,792      1,789      1,362    (3,513)
Benefits paid                          (1,757)    (1,558)      (590)     (671)
                                     --------    -------    -------   -------
Benefit obligation at end of year      33,756     29,671     11,931    10,666 
                                     --------    -------    -------   -------
Change in plan assets
Fair value of plan assets at                                                
 beginning of year                     46,465     41,407      1,446     1,258 
Actual return on plan assets            6,024      6,479         32        34 
Employer contributions                    125        137        244       154 
Benefits paid                          (1,757)    (1,558)         -         -
                                      -------   --------    --------   -------
Fair value of plan assets at end of                                            
 year                                  50,857     46,465      1 ,722    1,446 
                                      -------   --------    --------   ------

Funded status                          17,101     16,794     (10,209)  (9,220)
Unrecognized actuarial (gain) loss     (8,618)    (8,666)     (1,981)  (3,505)
Unrecognized net (asset)/obligation    (1,214)    (1,672)      7,025    7,853 
Unrecognized prior service cost         2,173      1,492           -      208 
Accumulated other comprehensive                                            
  income(expense)                       (163)       (160)          -        -
                                     --------    --------    -------  --------
                                                                             
Net amount recognized                $  9,279    $  7,788   $ (5,165) $(4,664)
                                     --------    --------   --------  --------

Amounts recognized in the statement of
  financial position consists of:
    Prepaid benefit cost              $ 9,441     $ 7,948    $    -   $    -    
(Accrued) benefit liability              (897)       (979)   (5,165)  (4,664)
    Intangible asset                      735         819         -        - 
                                      -------    --------   -------  -------
Net amount recognized                 $ 9,279     $ 7,788   $(5,165) $(4,664) <PAGE>
 
                                      -------    --------   -------  -------

</TABLE>


     The projected benefit obligation and accumulated benefit
obligation for the Company s unfunded retirement plans were
$3,886,000 and $3,143,000, respectively, as of December 31, 1998
and $3,218,000 and $2,729,000, respectively, as of December 31,
1997.

     The provisions of SFAS No. 132, "Employers  Disclosure about
Pensions and Other Postretirement Benefits," require recognition
in the balance sheet of an additional minimum liability comprised
of an intangible asset and other comprehensive income for pension
plans with accumulated benefit obligations in excess of plan
assets.  At December 31, 1998 and 1997, the liability exceeded
the unrecognized prior service cost, resulting in a minimum
liability adjustment, net of taxes of $99,000 and $97,000,
respectively, recorded as a reduction of the Company's equity.  

    The components of net periodic benefit costs for all
retirement plans for the years ended December 31, in addition to
the plan's weighted average assumptions as of December 31, were
as follows:

<TABLE>
<CAPTION>
                                                  Retirement Plans
                                              ---------------------------
In thousands                                     1998      1997      1996
                                              ---------------------------
<S>                                           <C>         <C>       <C>
Components of net periodic benefit costs
Service cost                                   $   958    $   879    $   839 
Interest cost                                    2,136      1,938      1,832 
Expected return on plan assets                  (4,021)    (3,620)    (3,219)
Amortization of unrecognized asset at                                       
 transition date                                  (458)      (458)      (458)
Amortization unrecognized of prior service                                  
 cost                                              274        169        164 
Amortization of prior experience (gains)          (258)      (207)       (51)
                                               -------     -------   -------- 
Net periodic benefit credit                    $(1,369)   $(1,299    $  (893)
                                               -------     -------   -------
                                   


Weighted-average assumptions
Discount rate                                     6.75%     7.00%      7.50%
Expected return on plan assets                    8.80%     8.90%      8.60%
Rate of compensation increase                     5.00%     5.00%      5.00% 

</TABLE>


     The components of net periodic benefit costs for the
postretirement health care benefits for the years ended December
31, and the plan s weighted average assumptions as of December
31, were as follows:
<TABLE>
<CAPTION>
                                        Postretirement Health Care Benefits
                                        -----------------------------------
In thousands                               1998      1997        1996
                                        --------    -------    -------
<S>                                     <C>        <C>         <C>
Components of net periodic benefit costs
Service cost                              $  278   $   315     $   493 
Interest cost                                749       701         954 
Expected return on plan assets               (68)      (60)        (45)
Amortization of unrecognized obligation
 at transition date                          502       524         524
Amortization of prior service cost             -        18          18 
Amortization of prior experience                                       
 (gain)/loss                                (134)     (218)          6 
                                         -------   -------     -------
Net periodic benefit cost                $ 1,327   $ 1,280     $ 1,950 
                                         -------   -------     -------
Weighted-average assumptions
Discount rate                               6.75%      7.00%      7.50%
Expected return on plan assets (net of      5.00%      5.00%      5.00%
 taxes)
</TABLE>


    Expense recognized for the years ended December 31, 1998,
1997, and 1996 amounted to $1,327,000, $1,280,000 and $1,848,000,
respectively.  The difference between the net periodic
postretirement cost and expense recognized has been recorded as a
regulatory asset.  Approval for recovery of these costs was
received from the DPUC in BHC's Eastern Division's rate decision
effective August 1, 1993, and BHC's Western Division's rate
decision effective April 25, 1996.



   For measurement purposes, a 7.8 percent annual increase in
the per capita cost of covered health care benefits is assumed
for 1998 (8.4 percent and 9.0 percent for 1997 and 1996,
 respectively).  This rate was assumed to decrease gradually to 
6.0 percent for 2001 and remain at that level thereafter.  A one-
percentage-point change to the assumed health care cost trend
rates for 1998 would have the following effects:

<TABLE>
<CAPTION>    
                                     One-Percentage      One-Percentage
                                      Point Increase      Point Decrease
                                     ---------------     ---------------
<S>                                  <C>                 <C>
In thousands
Effect on total of service and
 interest cost Components              $  198             $  (153)

Effect on postretirement benefit                                    
    obligation                         $1,636             $(1,378)

</TABLE>

Postemployment benefits.  In accordance with SFAS No. 112
"Employers' Accounting For Postemployment Benefits," the Company
accrues the cost of providing benefits to former or inactive
employees after employment but before retirement.  These benefits
are recognized over the employees' years of service or at the
date of the event giving rise to such benefits.  

                                      16
<PAGE>
<PAGE>


Note 13 - Incentive Stock Plans; Dividend Reinvestment and Common
Stock Purchase Plan


   In 1985, shareholders adopted a long-term incentive plan
(Stock Plan) that provided for the granting of incentive stock
options, nonqualified stock options, stock appreciation rights,
restricted stock and performance units to key executives. As
amended by shareholders in 1990, an aggregate of 525,000 shares
of the Company's Common Stock could be awarded under the Stock
Plan, which expired in January 1995.

    In 1994, shareholders adopted the Aquarion Company Stock
Incentive Plan (Incentive Plan) that provides for the granting of
nonqualified stock options, stock appreciation rights, restricted
stock, unrestricted stock and performance units (collectively,
Awards), but no more than an aggregate of 525,000 shares of stock
could be awarded under the Incentive Plan or purchased upon the 
exercise of stock options.  In 1997, shareholders approved an
amendment to the Incentive Plan to increase the number of shares
by 300,000 to bring the total number of shares authorized for use
under the plan to 825,000 shares.  No awards will be granted
under this plan after April 25, 1999.  

    Stock options available under the Stock Plan and Incentive
Plan are exercisable at a price equal to the market value, unless
otherwise indicated, at the date of the grant and remain
exercisable for 10 years, conditioned on continued employment,
from the date of the grant.  As of December 31, 1998,
571,196 shares were exercisable under the Stock Plan.  The
following options have been awarded to key executives:

<TABLE>
<CAPTION>

In thousands                                Number of    Option Price
                                               Shares       per Share
-----------------------------------------   ---------    -------------
<S>                                         <C>          <C>
Outstanding at December 31, 1994               514,150   $20.63-$28.28
Granted in 1995 (a)                            178,100   $23.25-$23.50
Expired in 1995                                (2,200)   $21.75-$27.13
                                            ----------
Outstanding at December 31, 1995               690,050   $20.63-$28.28
Granted in 1996 (a)                            167,900      $25.25
Expired in 1996                               (17,701)   $21.75-$27.13
Exercised in 1996                             (19,528)   $20.63-$24.63
                                            ----------
Outstanding at December 31, 1996               820,721   $20.63-$28.28
Granted in 1997 (a)                            136,800      $30.88
Expired in 1997                               (14,300)   $23.50-$27.13
Exercised in 1997                            (175,817)   $20.63-$28.28
                                             ---------
Outstanding at December 31, 1997               767,404   $20.63-$28.28
Granted in 1998 (a)                            156,200      $37.75
Expired in 1998                                (2,900)   $23.50-$30.88
Exercised in 1998                             (56,612)   $20.63-$28.28
                                             ---------
Outstanding at December 31, 1998               864,092   $20.63-$37.75
                                             ---------
</TABLE>

      (a)   These options were granted on October 13, 1995, December 5, 1995,
December 4, 1996, December 2, 1997 and December 14, 1998.  One-third of the
options granted become exercisable on each of the first three anniversaries of
the grant date, except for options granted to certain individuals employed by
IEA that became exercisable immediately upon the sale of that business.


   In accordance with SFAS No. 123 "Accounting for Stock-Based
Compensation," (SFAS 123) the Company adopted the disclosure
method of accounting for stock-based compensation.  The Company
continues to apply Accounting Principles Board Opinion No. 25, 
"Accounting for Stock issued to Employees," in accounting for its
stock-based compensation plans and accordingly, no compensation
expense has been recognized.  If the Company had recorded
compensation cost based upon the fair value at the grant date for
Awards under these plans consistent with SFAS 123, the Company's
net income and earnings per share would have been reduced to the
pro forma amounts indicated below:

<TABLE>
<CAPTION>

In thousands, except share data         1998       1997
<S>                                    <C>        <C>
Net Income
   As reported                         $19,959    $15,011
   Pro forma                           $19,494     14,776
Earnings per share
   As reported                           $2.69      $2.10
   Pro forma                             $2.63      $2.07



    The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in 1998,
1997 and 1996:  dividend yield of 4.4 percent; expected
volatility of 24 percent; risk-free interest rate of
4.46 percent; and an expected life of six years.


    The Company maintains a Dividend Reinvestment and Common
Stock Purchase Plan (Reinvestment Plan) which provides holders of
its common stock with a method of purchasing additional shares
without payment of brokerage or service charges.  In April 1994,
the Company amended its Reinvestment Plan to allow shareholders
to make optional cash payments at a 5 percent discount from the
market price and to include an additional 750,000 shares in the
plan.  The total number of shares reserved for purchase under the
Reinvestment Plan was 1,650,000, of which 1,428,283 shares were
issued at December 31, 1998. 

Note 14 - Property, plant and equipment

     Net property, plant and equipment at December 31, consisted
of the following components:


</TABLE>
<TABLE>
<CAPTION>

In thousands                                  1998       1997
<S>                                          <C>        <C>
Source of supply                             $33,331    $33,995
Pumping                                       21,992     20,477
Water treatment                              102,922    102,060
Transmission and distribution                278,097    266,368
General                                       34,432     36,419
Construction work in progress                  6,245      7,068
Utility plant held for future use                466        466
Nonutility property                           15,794     14,980
                                             -------   -------- 
                                             493,279    481,833

 Less:  accumulated depreciation             146,034    142,125
                                             -------    -------
                                            $347,245   $339,708
                                            ========   ========
</TABLE>
        
Note 15 - Inventories


    Inventories at December 31, comprised the following:

<TABLE>
<CAPTION>
In thousands                                  1998       1997
<S>                                           <C>        <C>
Lumber and logs                               $3,534     $2,561
Materials and supplies                           992      1,179
                                              ------     ------
                                              $4,526     $3,740
                                              ======     ======
Note 16 - Statement of cash flows


    Changes in assets and liabilities and supplemental cash flow
information for the years ended December 31, are set forth below:


</TABLE>
<TABLE>
<CAPTION>

In thousands                                     1998     1997      1996
<S>                                             <C>       <C>       <C>
Decrease (increase) in accounts receivable         $266   $(876)    $5,364
Decrease (increase) in other current assets       1,817   11,658  (11,592)
(Increase) decrease in inventory                  (786)    (857)       579
Increase in prepayments                         (1,944)  (2,248)   (1,082)
(Decrease) increase in accounts payable and       
  accrued liabilities                             (724)     (62)     2,094
Increase (decrease) in interest and taxes         
  payable                                         1,719    (182)       398
Net changes in other noncurrent balance sheet   
  items                                         (4,801)    (267)     1,000
                                               --------   ------  --------     
                                               $(4,453)   $7,166  $(3,239) 
                                               ========   ======  ========
 

Supplemental cash flow information:
Cash paid for:
Interest                                        $10,434  $10,374   $ 9,336
Income taxes                                    $10,225  $ 8,221   $10,602

</TABLE>

Supplemental disclosure of non-cash investing and financing
activities

    The sale of the discontinued operation (IEA) has been
recorded as a non-cash investing transaction for the year ended
December 31, 1996.

Note 17 - Commitments and contingencies

The Company from time to time is involved in legal actions
arising in the ordinary course of its business.  In the opinion
of management, none of these matters will have a material adverse
impact on the Company.


Note 18 - Subsequent event


   On February 16, 1999, the Board of Directors approved a 3-
for-2 split of the Company s issued common stock.  The stock
split was effected in the form of a 50 percent stock distribution
on the Company s common stock, payable on March 22, 1999 to all
shareholders of record on March 1, 1999.  No financial
information contained in the report has been adjusted to reflect
the impact of the common stock split.


    The following represents the pro forma effect of the stock
split as of December 31, 1998:

<TABLE>
<CAPTION>

                                             1998         1997          1996
                                            ------       ------       -------
<S>                                     <C>          <C>          <C>
Basic earnings per share                    $1.79         $1.40        $0.87
Weighted average common shares          
  outstanding                          11,135,190    10,709,841   10,397,083  
Diluted earnings per share                  $1.75         $1.39        $0.86

Weighted average common shares              
   outstanding                         11,417,585    10,823,439   10,461,845  

</TABLE>
                                     17
<PAGE>
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS


      To the Board of Directors and Shareholders of Aquarion Company


      In our opinion, the accompanying consolidated balance sheets and the
      related consolidated statements of income, of cash flows and of

      shareholders' equity present fairly, in all material respects, the
      financial position of Aquarion Company and its subsidiaries at

      December 31, 1998 and 1997, and the results of their operations and
      their cash flows for each of the three years in the period ended

      December 31, 1998, in conformity with generally accepted accounting
      principles.  These financial statements are the responsibility of

      the Company's management; our responsibility is to express an
      opinion on these financial statements based on our audits.  We

      conducted our audits of these statements in accordance with
      generally accepted auditing standards which require that we plan and

      perform the audit to obtain reasonable assurance about whether the
      financial statements are free of material misstatement.  An audit

      includes examining, on a test basis, evidence supporting the amounts
      and disclosures in the financial statements, assessing the

      accounting principles used and significant estimates made by
      management, and evaluating the overall financial statement

      presentation.  We believe that our audits provide a reasonable basis
      for the opinion expressed above. 





      PricewaterhouseCoopers LLP

      New York, NY 
      January 27, 1999, except as to Note 18, which is as of

      February 16, 1999 

 
MANAGEMENT'S STATEMENT ON RESPONSIBILITY
Management's Statement on Responsibility for Financial Information

            The management of the Company is responsible for the fairness,
      integrity and objectivity of the Company's consolidated financial
      statements, including all related information presented in the
      annual report.  These statements have been prepared in accordance
      with generally accepted accounting principles and include amounts
      based on management's best estimates and judgments.

            Management maintains and relies on a system of internal
      controls, which provides reasonable assurance that assets are
      safeguarded and financial records are adequate and can be relied
      upon to produce accurate financial statements.  The system includes
      the hiring and training of qualified personnel, written accounting
      and control policies and procedures, clearly drawn lines of
      accountability and delegation of authority.  In addition, the
      Company has an internal audit function which evaluates existing
      controls and recommends changes and improvements deemed necessary.

            The Board of Directors' Audit Committee, which is comprised of
      four nonmanagement directors, meets periodically with the Company's
      senior officers, independent accountants and the Company's
      management.  The Audit Committee reviews internal audits, financial
      reporting and internal control matters, as well as the nature and
      extent of the audit effort.

            Management believes that the Company's policies and
      procedures, as well as its internal control system, independent
      accountants and the Audit Committee, provide you, the shareholder,
      with reasonable assurance as to the integrity of the Company's
      consolidated financial statements.



      Richard K. Schmidt
      President & Chief Executive Officer



      Janet M. Hansen
      Executive Vice President,
      Chief Financial Officer
      & Treasurer

      January 27, 1999 

 
SUPPLEMENTAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
                                1998       1997      1996      1995      1994
<S>                            <C>       <C>       <C>       <C>       <C>
Book value per share           $19.56    $18.26    $17.52    $17.72    $17.43
Payout ratio (per share)        61.5%     77.6%    124.6%     85.3%     86.6%

Price/earnings ratio (1)         15.2      16.5      21.4      13.4      12.6
Capitalization:

    Long-term debt              49.0%     53.1%     54.7%     52.0%     49.1%
    Preferred stock of                
          subsidiaries              -         -         -        .1       0.2

     Common equity               51.0      46.9      45.3      47.9      50.7   
                               ------    ------    ------    ------    ------
Total                          100.0%    100.0%    100.0%    100.0%    100.0%
                               ======    ======    ======    ======    ======

</TABLE>
(1) Computed at December 31 



Quarterly Financial Data
(Unaudited)

<TABLE>
<CAPTION>
                                              Income
In thousands, except share data   Operating    before     Net    Per Share
                                  revenues    income     income     (1)
                                               taxes
----------------------------------------------------------------------------
<S>                               <C>        <C>      <C>         <C>      
1998
First quarter                     $ 25,383   $ 5,363  $ 3,035     $0.41
Second quarter                      26,827     7,309    4,008      0.54
Third quarter                       29,968    11,016    6,125      0.82
Fourth quarter                      33,491    10,366    6,791      0.92
                                  --------   -------  -------
Total                             $115,669   $34,054  $19,959
                                  ========   =======  =======
1997

First quarter                     $ 23,389   $ 4,287  $ 2,388     $0.34
Second quarter                      26,522     6,345    3,536      0.50
Third quarter                       29,226    10,230    5,732      0.80
Fourth quarter                      27,965     6,065    3,355      0.46
                                  --------   -------  -------
Total                             $107,102   $26,927  $15,011
                                  ========   =======  =======
</TABLE>

(1)   Quarterly earnings per share are based on weighted average shares
      outstanding during each quarter. 
               
                                      18

<PAGE>
 
<PAGE>

Market and dividend information


   The following table sets forth the high and low closing sale
prices of the Company common stock as traded on the New York
Stock Exchange (NYSE) and as reported on the NYSE composite tape,
along with dividends paid per share on a quarterly basis.  At
December 31, 1998, there were 8,138 shareholders of record
compared to 8,017 shareholders of record at December 31, 1997.

<TABLE>
<CAPTION>
          ---------------------------------------------------------
Period                     Closing sales price    Dividends paid

                             High       Low
<S>                        <C>          <C>       <C>
1998

First quarter                 36 1/2    31 1/2        $  .41

Second quarter              34 11/16    31 5/8           .41

Third quarter                 35 7/8    33 1/8          .415

Fourth quarter                    41   32 7/16          .415

1997

First quarter                 28 1/2       $27       $  .405

Second quarter                27 3/4    24 3/4          .405

Third quarter                 28 1/8    25 1/8           .41

Fourth quarter                36 1/2        27           .41


</TABLE>
<TABLE>
<CAPTION>


Water supplied from Utility Operations


---------------------------------------------------------------------------
                               1998      1997      1996      1995      1994
<S>                          <C>        <C>       <C>      <C>       <C>
Consumption: (Millions of
 Gallons)

Residential                   11,781   11,641    11,036    12,129    10,586
Commercial                     4,720    4,674     4,275     4,606     4,815
Industrial                     1,743    1,747     1,988     2,236     2,388    
Other                          2,219    1,960     1,949     2,467     2,255

Total                         20,463   20,022    19,248    21,438    20,044 

</TABLE>

                                      19
<PAGE>